Q32. How is Foreign Currency Valuation managed in the SAP system?

A.31 This is the process to translate and adjust foreign currency amount of monetary accounts to local amount by a current
suitable exchange rate (standard exchange rate).

We carry out the foreign currency valuation before we create the financial statements. The valuation includes the following
accounts and items:

1. Foreign Currency balance sheet accounts, that is, G/L accounts that we manage in a foreign currency (the balances of
the G/L accounts in foreign currency are valuated)

2. Open items (Customers, Vendors, G/L accounts) posted in Foreign Currency (the line items are valued)

Transaction Code FAGL_FC_VAL valuates open items in foreign currency as wells as the foreign currency balance sheet
accounts.

In order to carry out a foreign currency Valuation, we need to make certain settings in the customizing:

· Currency Customizing
· Defining the Valuation Method
· Defining the G/L account for exchange rate differences from the valuation. We must also specify balance sheet
adjustment accounts for receivable and payable accounts

The customizing or configuration part of foreign currency valuation in the IMG is as follows:

Step 1: Maintain the Exchange rate type (T-­-code OB07)

Path in IMG: SAP Net weavers -­-> General Setting -­-> Currencies -­-> check the exchange rate type.

Either we can use the existing entries or create a new entry. If we create a new entry save the data .For our example, we
will be using the Exchange rate determination “M” – Standard Translation at average rate.

Step 2: Maintain the translation Ratio: (T-­-Code: OBBS)

Here we maintain the relationship between currencies per exchange rate type and currency pair using translation ratios.

Path in IMG: SAP Net weavers -­-> General Setting -­-> Currencies -­-> Define translation ratios for Currency translation

Step 3: Maintain Currency exchange Rate, Validity period (T-­-code: OB08)

We can maintain exchange rates in indirect quotation, (one unit of foreign currency is quoted for the local currency) or in
direct quotation, (one unit of local currency is quoted for the foreign currency.)

Path in IMG: SAP Net weavers -­-> General Setting -­-> Currencies -­-> enter the exchange rates.

Step 4: Configuration of Valuation Method (T-­-Code: OB59)

In this step we need to define the valuation method/procedure by which the valuation will be performed.

Path in IMG: Financial accounting (New) -­-> General Ledger Accounting (New) -­-> Periodic Processing -­-> Valuate -­-> Define
Valuation Methods.
 We maintain the following settings in the valuation method.

· Pick one of the five valuation procedures are available Lowest Value Principle, Strict Lowest Value Principle,
Always valuate, Revaluate Only, Reset
· Exchange rates are types are attached to the valuation method.
· Determine rate type from Account balance: If we select this field, the account balance/group balance in the
relevant foreign currency is used to determine the exchange rate type. This is relevant for account balance
revaluation. Determine rate type from invoice reference: If we select this field, the open item in the relevant
foreign currency is used to determine the exchange rate type. This is relevant for open item revaluation
· A document type SA is attached to the valuation method. For our example, we have strict lowest value principle as
valuation method.

Step 5: Define the valuation area:

Path in IMG: Financial accounting (New) -­-> General Ledger Accounting (New) -­-> Periodic Processing -­-> Valuate -­-> Define
Valuation area. We then define a valuation area assign to it the valuation method and company code currency.

Step 6: Assign the Valuation areas and Accounting Principles:

Once the valuation area is defined we assign with the accounting principle to it.

Path in IMG: Financial accounting (New) -­-> General Ledger Accounting (New) -­-> Periodic Processing -­-> Valuate -­-> Assign
Valuation areas and accounting principles.

Step 7: Create P&L G/L accounts to record the Gain/Loss from the foreign currency valuation and Balance sheet
adjustment account:

We need to create two G/L account in FS00, One for Gain/Loss Unrealized Foreign Currency Revaluation and the other one
for Gain/Loss Realized Foreign Currency Revaluation. *Also we need one more Balance sheet adjustment account for
Receivable or payable (adjustment account) to post the foreign currency valuation of open items. (Since we cannot post the
reconciliation account directly)

Step 8: Assign the G/L accounts to prepare automatic postings for Foreign Currency Valuation: (T-­-code: OBA1)

Path in IMG: Financial accounting (New) -­-> General Ledger Accounting (New) -­-> Periodic Processing -­-> Valuate -­-> Foreign
Currency Valuation -­-> Prepare Automatic posting for Foreign Currency Valuation.

Execution of the Foreign Currency valuation:

A Foreign currency valuation is necessary if vendor/customer account contains open items in a foreign currency or if G/L
account balance is maintained in a foreign currency. The amounts of these open items were translated into the local
currency at the time they were entered using the current exchange rate. The exchange rate is probably different at the time
of closing, and open items/balances need to be valuated again. A program valuates the open items using the new exchange
rate and enters the valuation difference in the valuation line items. It also creates the valuation posting.
Path in SAP Easy Access: Accounting -­-> Financial Accounting -­-> General ledger -­-> Periodic Processing -­-
> Closing -­-> Valuate
-­-> FAGL_FC_VAL-­- Foreign Currency Valuation (New) f.05

1. What are the four valuation methods?

A. The following four methods are available in SAP:

Lowest Value Principle: The valuation is only displayed if the valuation difference between the local
currency amount and the valued amount is negative. That is, an exchange loss has taken place. The
valuation is calculated per item total. Items with invoice reference are viewed together.

Strict Lowest Value Principle: The valuation is only displayed if, as a consequence, the new
valuation has a greater devaluation and /or a greater revaluation for credit entries than the previous
valuation. The valuation is calculated per item total. Items with invoice reference are viewed
together.

Always valuate: If we select this procedure, both devaluation/revaluations are taken into
consideration.

Revaluate Only: If we select this method system only does a revaluation if applicable but does not
do devaluation where there is exchange loss

Reset: If we select this parameter then the open items are valuated at the acquisition price.
This way the valuation difference is set to Zero. The old valuation method is reset. The account
determination is reversed: The revenue that arises is posted to the expense account.